Certain amounts of your income can be deducted from your earnings. These deduction are sometimes called exemptions. What is left after subtracting the exemptions, is taxable income and the percentage is taken from this amount. Consult with a professional for the specifics on what you can deduct and how to figure out how much tax you actually owe. The tax codes are so complicated, an average person can't make heads or tails of the language used by Congress.
2007-12-22 09:59:56
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answer #1
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answered by rowlfe 7
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Your tax is based upon your taxable income. There are a number of ways that your taxable income is determined.
First off are certain above-the-line reductions called adjustments. These include alimony, qualified retirement plan contributions, student loan interest and penalties for early withdrawl from a timed deposit account. The result is your Adjusted Gross Income or AGI.
Next come exemptions. These are based upon your filing status and the number of dependents you claim on your return. You get one exemption for yourself. If you file a joint return with your spouse you get one for our spouse as well. If you have dependents, you get one for each dependent. For 2007, each exemption that you claim reduces your taxable income by $3,400.
Finally you subtract deductions. There are 2 types, the standard deduction ($5,350 or a Single taxpayer for 2007, more if you are Head of Household and $10,700 if you file a joint return) and itemized deductions. If your itemzed deductions are higher than your standard deduction, you'll noramlly take the itemized deductions. There are exceptions to that if you are married and file separate returns where both must either itemize or take the standard deduction regardless of what would otherwise be best for the individual taxpayer.
Once you subtract the deductions you arrive at your taxable income. That is what the tax is based upon.
There are other considerations. Tax credits reduce your tax liability directly, dollar for dollar. Most can only reduce your liability to $0 but a few like the EIC or Additional Child Tax Credit are refundable so even if your tax liability is $0 you can have that money paid to you.
Lastly there are additional taxes paid by some taxpayers. The most prevalent by far is the Self-Employment tax levied upon self-employed individuals. That is added to your tax bill before any credits are subtracted.
2007-12-22 18:45:57
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answer #2
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answered by Bostonian In MO 7
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Your taxes are based on taxable income, but even then you don't just take the 15% for your bracket times that amount. The first part of your taxable income is only taxed at 10% - that limit depends on your filing status. Then the amount over that limit is taxed at 15%.
2007-12-25 01:35:01
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answer #3
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answered by Judy 7
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Taxable income, which is gross income minus tax credits, adjustments & deductions. You'll be able to take all of your tax deductable expenses if you use the 1040 long form, when your tax deductable expenses are more than the standard deduction and you have investment, self-employment, or other income besides wages.
2007-12-22 18:11:22
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answer #4
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answered by sheik_sebir 4
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For federal income taxes, you calculate taxes based on taxable income. The federal income tax is not calcualted on Adjusted Gross Income.
For more information on taxes and free report on tax deductible items visit www.tax-professor.com
2007-12-22 18:00:53
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answer #5
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answered by Don T 1
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Taxes are calculated on line 43 "Taxable income", but then your actual tax depends upon what follows on all the rest of the lines on the 1040.
2007-12-23 12:31:24
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answer #6
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answered by r_kav 4
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You are taxed on your income after all the deductions are taken out.
2007-12-22 17:58:31
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answer #7
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answered by JP 2
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% is based on your taxable income after all deductions and exemptions
2007-12-22 17:57:14
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answer #8
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answered by ChicagoMan 3
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If you itemize, after all the deductions. This is called adjusted income.
2007-12-22 17:55:14
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answer #9
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answered by ed 7
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